The Northern Ireland secretary, Theresa Villiers, has applied for a partially secret court hearing to prevent a prominent dissident republican from discovering on what grounds he was returned to prison.

The formal request for a closed material procedure (CMP) in the case of Terence McCafferty, whose release on licence was revoked, is the third time in recent weeks that ministers have resorted to legal powers contained in the new Justice and Security Act in Northern Ireland cases.

CMPs permit the judge and one party to a civil dispute to see sensitive evidence, but prevent claimants and the public from knowing precisely what is being alleged. Most of the arguments during the legislation's passage through parliament focused on operations of the intelligence services in Iraq and Afghanistan.

McCafferty, said to be a member of the Real IRA, was convicted of leaving a car bomb outside a vehicle licensing office in Belfast. He was sentenced to 12 years in jail in 2005 and released on licence in November 2008.

A few weeks later, he was arrested on the basis that his continued liberty was a risk to others. McCafferty, challenging the reasons for his re-arrest, applied for his freedom with a writ of habeas corpus.

In 2010, the commissioner for the Northern Ireland Remission of Sentences Act said McCafferty should be released on the unusual grounds that he could not receive a fair hearing due to the limited degree of disclosure that could be made in any trial. However, McCafferty is still in prison.

Kevin Winters, a solicitor whose law firm represents McCafferty, said: "We are concerned about the developing pattern of CMPs being used as the norm [to defend legal actions] rather than being used as exceptions in extreme cases."

The secretary of state's application says McCafferty commanded the Real IRA in Maghaberry prison and "displayed a clear desire to continue his involvement in RIRA upon release, including plans for attacks that would represent a threat to public safety."

According to the document, McCafferty was told the reasons for his return to prison at the time. It goes on to add: "The sensitive material in this case … cannot be disclosed in open because of the damage such disclosure would cause to the national interest."

Villiers' application implies that without being able to rely on the sensitive material in a secret hearing, at which neither the public nor McCafferty would be present, the authorities might not be able to resist his claim for compensation and to be freed.

Critics of secret hearings allege that a cloak of national security is being exploited to resist legitimate claims and that courtroom battles are no longer fought on a level playing field. The more commonly used public interest immunity (PII) certificates, which prevent evidence being used by either side in a court case, may be falling into abeyance.

CMPs add a more versatile legal weapon to the government's armoury, permitting intelligence to be introduced into a case while withholding it in full from a claimant. Supporters – including the cabinet minister Ken Clarke, who ushered the act through parliament – argue that it enables the government to resist ill-founded claims.

This month the government applied for CMPs to prevent information emerging about the roles of Freddie Scappaticci, the west Belfast man alleged to be the military informer codenamed Stakeknife, who ran the IRA's internal security unit in the 1990s, and Martin McGartland, a former RUC agent who infiltrated the IRA.

An independent republican councillor jailed in the same part of Maghaberry top-security prison as McCafferty said the use of the CMP showed how "paranoid" the British state was about its security policies in the north of Ireland.

Gary Donnelly, who has since been released, condemned the gagging powers in the McCafferty case. "It's obviously designed to put Terry's legal team at a disadvantage by holding back all the material in the case against him," he said. "The frightening thing is that these new powers could not only be used against Irish republicans opposed to the sell out in the north of Ireland but to anyone in Britain or Ireland the British deem an enemy of the state."

The hardline Derry republican, who opposes Sinn Féin's peace strategy and is aligned to the pro-New IRA 32 County Sovereignty Committee, added: "If this was happening in China the British government would be howling in protest about such practices."

Donnelly and McCafferty were both held at Roe House in Maghaberry when the former was on remand in 2010 for three and a half months.